Pension Matters
State Employees Retirement Fund
Most Recent Market Value | Archived Monthly Profiles
August 2011
Per the most recent Pension Profile, the fund continues to be lead by domestic equities at nearly 35% with a slight increase in real estate holdings and absolute and real return investment strategies.
Invest Michigan! Partnership
LANSING, Mich., Jul 26, 2011 (BUSINESS WIRE) — “The U.S. Small Business Administration (SBA), State of Michigan Retirement Systems (SMRS), The Dow Chemical Company and Invest America have partnered to provide Michigan businesses with debt and equity funding through the InvestMichigan! Mezzanine Fund.” To read the full story go to www.marketwatch.com/story/michigan-businesses-first-in-country-to-benefit-from-new-impact-investment-initiative-2011-07-26?reflink=MW_news_stmp
Hedge Fund Stumbles
A report in the July 6th Wall Street Journal indicates “Jim Elkins, an official at Michigan's state pension fund, told Front Point it had decided to yank its remaining $375 million investment in the Greenwich, Conn., firm's flagship hedge fund. That was close to one-fourth of all the money left in the shriveled fund. The fund has been hit by scandal of insider trading. A few years ago this hedge fund was one of the front runners. The firm's rise and decline, extreme even for the boom-and-bust standards of many hedge-fund firms, shows just how sensitive pension funds can be to any allegations of insider trading.” This is also another reason why pension funds need to steer clear of hedge funds to avoid excessive risk-taking and possible sudden, steep losses.
“As assets under management dropped, the situation became almost a death spiral,” Jon Braeutigam, chief investment officer for the Michigan Department of Treasury said, adding that Michigan made money on its investments with Front Point.
“Michigan pulled out $100 million in the first quarter. In phone calls on May 10, Messrs. Braeutigam and Elkins told Front Point’s co-chief executive, Daniel Waters, that Michigan was withdrawing the remaining $375 million it had invested in Front point’s biggest fund. http://online.wsj.com/article/SB10001424052702303763404576419871799350168.html
Retirement Benefits
Progress Michigan has published a paper on the status of the middle class in Michigan. “Several factors threaten the ability of working Michiganders to look forward to a secure retirement. Only 60 percent of working Michiganders currently have access to a retirement plan at work, similar to the mid-1980s. But such plans have gradually shifted from pensions whose costs and financial risks are borne almost exclusively by employers to 401(k)-type plans that rely on worker contributions and expose individuals to the vagaries of the stock market and sky-high fees, which eat away at returns. Nationally, roughly 63 percent of all employer-sponsored retirement plans are now 401(k) s or something similar. More than 10 percent of working Michiganders don’t participate in their employer-sponsored plan either because they can’t afford to contribute or fail to opt in.” www.dEMos.oRg or www.progressmichigan.org
Which Retirees Will Take The Biggest Hit?
“A retired couple born after 1952 with more than $50,000 in income, including $48,000 in pension benefits, who now receive the full $1,200 refundable homestead property tax credit.
Their taxes will be $3,130 higher in 2013 than they would have been had the tax law not been changed, according to the new analysis (www.house.mi.gov/hfa/PDFs/FINAL%20TaxpayerExampleM.pdf) by the House Fiscal Agency. They’ll be paying the income tax on all their pension income at a 4.25 percent rate and because the income threshold for the homestead credit declines from $82,650 to $50,000, they lose the whole thing.” To read the entire article by Peter Luke go to www.mlive.com/politics/index.ssf/2011/07/fifty-something_michigan_pensi.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+StatelineorgRss-Michigan+%28Stateline.org+RSS+-+Michigan%29&utm_content=My+Yahoo
If You Can’t Afford To Retire At 65, How Long Do You Have To Work To Have Enough Money?
A new analysis by the nonpartisan Employee Benefit Research Institute (EBRI) finds that for many people, it could be a very long time — for lower income workers especially, well into their 70s. But the biggest positive difference for those who keep working is if they also continue to contribute to a 401(k) type retirement plan.
Full results of the analysis are published in the June 2011 EBRI Issue Brief, “The Impact of Deferring Retirement Age on Retirement Income Adequacy,” online at www.ebri.org
MetLife LTC Request For Premium Increase
Ever since I got my letter from MetLife indicating they were planning on requesting a 45% increase in premiums, I have been on the hunt for information. First I called MetLife about cancelling my policy. Of course I can do that, but there would be no refund of premiums already paid in. A call to ORS was of little value since I was told they had nothing to do with the voluntary benefits. However, a call by Don Quillan, the Council Legislative Chair to Lauri Schmidt of ORS, disclosed the following, “MetLife is requesting an increase in all states that they have contracts in and have been approved for the full 45% in some states. I am in no position to know whether LARA will approve the full 45% or any other amount they feel adequate. Knowing that some states have approved it, the chances of an increase are likely. Long Term Care Insurance is a heavily regulated product by the Insurance Bureau. The reason for the increase is that in the past, MetLife’s premiums were much lower than other companies, which caused them to have a large block of business. Now that they have a large block of business with such low premiums, they cannot afford to sustain their contracts with policyholders causing a need for such a drastic rate increase.
The State of Michigan has 10,000 employees and retirees enrolled in this benefit per Lauri Schmidt or ORS. MetLife &is trying to get out of the Long Term Care business. “With this being said, the State of Michigan needs to find another carrier to continue this benefit. Because this is such a regulated product, there are very few carriers in the business. With the change of our LTC carrier, our policyholders have the option to continue their coverage through MetLife or to transfer their contracts to Prudential and continue coverage with a company that specializes in the product.”
I have had discussions with a couple of people at the Office of Financial and Insurance Regulation (OFIR). I have been advised that as a consumer I have a right to file a complaint (which I am doing). The complaint form is on their web site at www.michigan.gov/lara/0,1607,7-154-10555_12902_12907---,00.html and scroll down to Insurance.
Other discussions with OFIR regarding a public hearing on the LTC request for an increase resulted in this response from Karen Dennis, Departmental Manager, Health Plans Division, “The decision to hold a public hearing is an option of the Commissioner; not a requirement of Chapter 39 (Michigan’s Insurance Code).
Met Life is not domiciled in Michigan. It is possible, although we do not know this for sure; Met Life is awaiting a decision on this proposed rate increase in their state of domicile before submitting it in other states. (MetLife has not filed for the rate increase in Michigan as of yet.) We do not make a practice of posting all requested rate increases on our website. As you may know, thousands of insurance companies are licensed to do business in Michigan. We do not have adequate staff to handle posting all rate and form filings to our website due to the volume received on a daily basis. Additionally, we are not able to notify insured’s when rate increases are received. First, we do not have lists of individuals that are insured by companies. Who is insured by which company can change on a daily basis as people drop and add coverage or change insurers. Also, as with posting, even if we knew who was insured with which insurer, we do not have adequate staff to send out notices of every rate and form filing as they arrive.”
I am also going to solicit my Representative and Senator in assisting me in getting information on this issue and you might want to do the same.
Labor Department Pushes Greater Retirement Plan Oversight
The U.S. Department of Labor is moving forward with work aiming to expand oversight of retirement plans. The new rules would require financial advisers and brokers who provide retirement-plan investment advice to clients to adhere to a stricter standard (the so-called “fiduciary-duty standard”) than is currently in place. The DOL has argued that under the current regulations, financial advisers can give advice that is not in the client’s best interest but proves lucrative to advisers through high fees. While some House members and financial industry representatives spoke out against the proposed rules at a House hearing this week, the DOL has vowed to stay the course. http://online.wsj.com/article/SB10001424053111903635604576472404135121390.html?mod=rss_US_News&wpisrc=nl_wonk
Will the new Michigan tax plan produce economic growth?
According to a research paper put out by the Citizens Research Council, Michigan’s revenue base is now smaller and more dependent on individuals paying taxes and less on business taxes and as individuals pick up the tab for higher income tax payments, it will reduce their ability to spend in ways that would spur the economy. The growing tax burden could slow the recovery, according to the CRC report. “Consumer spending is considered the main driver to economic recovery, so anything that leaves consumers with less disposable income could hurt the state's recovery by reducing consumption.” To read the entire CRC report, go to www.crcmich.org/PUBLICAT/2010s/2011/sbn2011-02.pdf
Editor’s note: June Morse is the Lansing SERA Chapter President. She may be contacted at jmorse10@comcast.net or 517-886-9323.
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